Key Points
Both retail and professional traders are fixated on monitoring shipping traffic through the Strait of Hormuz, believing it can forecast oil price movements, but this approach is flawed. Oil diversion strategies by Saudi Arabia and the United Arab Emirates have reduced the strategic importance of the Strait of Hormuz. To hedge your portfolio against Hormuz-related risks: ignore market noise and focus on stocks contributing to U.S. energy security and independence.
Predicting energy price trends is inherently challenging, and becomes significantly more difficult during wartime.
The current conflict has led to a substantial slowdown in shipping volume through one of the world's most critical maritime passages. While not an impossible task, it comes close.
Even the world's top energy experts now rely heavily on speculation. Predictions would be simpler if one knew when and how this war will end. For now, admitting "we don't know" is acceptable because, frankly, no one does.
The U.S. naval "blockade" around Iranian ports near the Strait of Hormuz has been in effect for less than a week. When announced, some feared it would provoke Iran or its militant forces, leading to attacks on ships, ports, or personnel. Fortunately, the situation remains relatively calm. However, it could escalate rapidly due to a drone strike, a stray Iranian missile, or a mine explosion in the strait. A direct attack on a U.S. naval vessel would certainly cause oil prices to spike. The current environment is perilous and volatile.
That said...
My view → The global energy significance of the Strait of Hormuz is lower than it was just weeks ago. Here's why:
In recent years, Saudi Arabia and the UAE have wisely constructed alternative pipelines. Saudi Arabia's pipeline can transport up to 7 million barrels per day, and the UAE's roughly 1.5 million barrels per day, effectively halving the volume of oil that must transit the Strait by sea.
The importance of the Strait of Hormuz extends far beyond oil. Concerns persist about potential shortages of fertilizers, refined products like jet fuel, and even helium for semiconductor manufacturing. Even if shipping through the strait returned to pre-war levels—which, incidentally, no one expects soon—restoring energy and related supply chains to normalcy could take months. It is no exaggeration to say we are in a period of extreme uncertainty. Given this, I am only certain of two things:
First, the live ship map on MarineTraffic.com is currently the most critical map for global markets.
Second, this war will eventually end. What happens afterward? Will the U.S. revert to its pre-war stance, or will it push forward to become the world's dominant energy power?
Many investors are betting on the latter. Although U.S. oil production is at record highs, current drilling activity hasn't increased significantly, suggesting major oil companies are not yet ready to ramp up investment.
Some smaller, more agile firms can increase crude output, but we await capital expenditure plans and earnings reports from ConocoPhillips, Exxon Mobil, and Chevron later this month.
With so many unknowns, how should investors proceed? Where should capital be allocated now?
My view → After discussions with energy investors and industry insiders, a clear theme emerges: invest in companies bolstering U.S. energy security.
Tom Lee, founder and CEO of research firm Fundstrat, advises focusing on three long-term security themes: national security, cybersecurity, and energy security.
Within energy, Lee also recommends focusing on the trillion-dollar energy infrastructure build-out. He and his team are bullish on